Why USD Is Stronger Than Indian Rupee?

A Report By

This drop of value of rupee is from very long time (after independence of India) and so problems are seems to be chronic. . People of India must be aware of this problem in order to minimize the problem. This is because of the fact that its value in comparison to the widely used currency in world dollar is decreasing consistently and therefore it is very important for the India to know and rectify the problems which causes it. This subject of this project is one of the efforts to generate a detailed report about this problem.DeV KuMar Introduction:- Investors in all over world not only impacts the share market but the whole economic conditions of the country and it is observed that most investors started to believe that value Indian rupee will not be the same in world market as it is now.

the Indian currency i. According to the historians. The paper money was introduced under their reign in the latter part of the 18th century. rupee was brought into existence by Sher Shah Suri in the 16th century and it was evaluated as equal to 40 copper coins per rupee. United State Dollar .e. Bank of Hindustan made the earliest rupee notes issues in the year 1770.History Indian Rupee India is the place where the concept of coinage developed at its earliest in around 6th century BC which later on built the base for other currencies of the world.

The word "dollar" is derived from Low Saxon "thaler". a town in the Ore Mountains of northwestern Bohemia. then part of the Holy Roman Empire. the dollar was approved by Congress in a largely symbolic resolution on August 8.The history of the dollar in North America pre-dates US independence. Congress acted on Hamilton's recommendations in the Coinage Act of 1792. Last 60 Years Exchange Rate Of INR To 1USD. Joachim's Valley. now part of the Czech Republic) So called because it was minted from 1519 onwards using silver extracted from a mine which had opened in 1516 near Joachimstal. the Continental Congress had authorized the issuance of dollar denominated coins and currency.7619INR . now Jáchymov. an abbreviation of "Joachimsthaler" – (coin) from Joachimsthal (St. Bohemia. the government turned its attention to monetary issues again in the early 1790s under the leadership of Alexander Hamilton. It began with the issuance of Early American currency called the colonial script. After passage of the Constitution was secured. Though several monetary systems were proposed for the early republic. the secretary of the treasury at the time. since the term 'dollar' was in common usage referring to Spanish colonial eight-real coin or Spanish dollar. which established the dollar as the basic unit of account for the United States. whereby the issuance of currency was equal to the goods and services in the economy. Year 1960 Exchange Rate of Usd 4. 1786. Even before the Declaration of Independence.

There are a number of instances when a sudden movement in the exchange rate has made companies loss or gain .1970 1980 1990 2000 2010 4. and why. when corporate executives used to be ill-informed about international news. Considering the large volume of transactions. India follows the Liberalized Exchange Rate Management System (LERMS).8610 INR 17.5758 INR Today 26th July Exchange of United State Dollar: 1 us {$} Dollar = 44.5000 INR 7. Long gone are the days of the fixed exchange rate regime. a movement of even 2-3 paisa in the exchange rate can hit the bottom-line of any corporate. Today.4927 INR 46. under which it is absolutely essential for corporate executives to understand how the exchange rate moves. The Major Reason of Weakness of Indian Rupee Against United State Dollar:- Every major development in Indian or world economy affects the Indian currency market.7619 INR 7.4047{ } Indian rupees. movement of oil prices or other factors influencing the currency market.

In case of upward movement of interest rate in the United States. There are several factors that influence the currency market. while big investments through Foreign Institutional Investors (FIIs) and Foreign Direct Investment (FDI) are expected in the near future. which have impacted the market recently. the US Dollar appreciates against other currencies as well as against the Indian Rupee. are discussed below:  Change of Interest Rate:1. Huge foreign investments have already come to India. The value of the currency of any country depends on the interest rate of that country.  Inflow of Foreign Funds:1. In the last couple of months. In the recent past there have been instances of rate hikes by the FED. .heavily in foreign currency transactions. Some of the important ones among them. substantial foreign funds. Strong economic fundamentals and good ratings by international rating agencies have boosted foreign investors’ confidence in the Indian market. as a result of which the USD had appreciated against major international currencies as well as the Indian Rupee. The exchange rate depends on demand and supply of currency. Any change of interest rate by the Federal Reserve Bank of New York through the Federal Open Market Committee has a great impact on the currency market.

 GDP (Gross Domestic Product) Growth Rate:1." which is caused by growth in aggregate demand or observed output. 5. perhaps since it tells them what happens to their pay check. 2. i. 7. It is conventionally measured as the percent rate of increase in real gross domestic product. Growth is usually calculated in real terms. inflation-adjusted terms. Economic growth is the increase in value of the goods and services produced by an economy. i.e. minus the value of imports.. Gross Domestic Product. equal to total consumer. 3. As economic growth is measured as the annual percent change of National Income it has all the advantages and drawbacks of that level variable. The real GDP per capita of an economy is often used as an indicator of the average standard of living of individuals in that country. The total market value of all final goods and services produced in a country in a given year. But people tend to attach a particular value to the annual percentage change. In economics. "economic growth" or "economic growth theory" typically refers to growth of potential output. 4. and economic . or GDP. plus the value of exports. production at "full employment. investment and government spending.e. 6. in order to net out the effect of inflation on the price of the goods and services produced.

The economy has posted an average growth rate of more than 7% in the decade since 1997.  India GDP Growth Rate:The Gross Domestic Product (GDP) in India expanded 8. and a multitude of services. previous year. reducing poverty by about 10 percentage points. Services are the major source of economic growth. From 2004 until 2010. . modern agriculture. handicrafts. However.50 percent in December of 2004. India's average quarterly GDP Growth was 8.10 percent in September of 2006 and a record low of 5. GDP per capita does not provide any information relevant to the distribution of income in a country. a wide range of modern industries. there are some problems in using growth in GDP per capita to measure general well being. India's diverse economy encompasses traditional village farming.growth is therefore often seen as indicating an increase in the average standard of living.40 percent reaching an historical high of 10.20 percent in the fourth quarter of 2010 over the same quarter. 9. accounting for more than half of India's output with less than one third of its labor force. 8.

 Gold Standard:- . The market reacted with a significant bullish move from 1. US GDP Growth Rate:The U.8% declining from a 3.25%. Figures indicated that the world’s largest economy grew at an annualized rate of 1. US interest rate decision was released as expected holding interest rates at there current ultra low level of 0.5-3% per year but with substantial deviations.S.6750 by in the early hours of this morning. More interestingly the press conference following the announcement was very dovish with officials opting to indicate that interest rates would remain at their current levels for the foreseeable future.65 in afternoon trade to 1. GDP growth has historically averaged about 2.1% growth rate in Q4 of 2011.Today’s focus remained firmly on the US economy with the focus shifting from interest rates to GDP.

according to the World Gold Council. European countries and USA have more gold assets than India. Other precious metals could be used to set a monetary standard. the country had imported more than 900 tons of gold." A county under the gold standard would set a price for gold. Current assets of any country always remain constant. Indian Rupee has less value than dollar. . The total currency and Gold will always remain constant. with demand for jewellery usually rising during festivals and marriages. A combination of the gold and silver standard is known as bimetallism. National money and other forms of money (bank deposits and notes) were freely converted into gold at the fixed price. say $100 an ounce and would buy and sell gold at that price. In 2010. 3. silver standards were common in the 1800s.1. 2. The Encyclopedia of Economics and Liberty defines the gold standard as "a commitment by participating countries to fix the prices of their domestic currencies in terms of a specified amount of gold. It depends on the value of the gold present on that country. So. This effectively sets a value for the currency. India is the world's biggest market for gold. in our fictional example $1 would be worth 1/100th of an ounce of gold.

there would be a downward movement of the BSE index. if there is any negative flow of funds by FIIs.  Price Of Oil:- . the supply of USD against the Indian Rupee became high. at the time when FIIs wanted to withdraw funds from the market. Banking & Finance:have been infused into the Indian market. the Indian rupee has shown a tendency to appreciate due to a huge inflow of foreign funds in the Indian market by FIIs or through FDIs in the form of External Commercial Borrowings (ECB) and Foreign Currency Convertible Bonds (FCCBs). On the other hand. Since most of these have been in the form of USD. or INR appreciates against USD. and it appreciated against the Rupee. and consequently USD would appreciate against INR. During the last one to one-and-a-half years. the supply of USD increases in the market and it depreciates against INR. A direct relationship may be drawn between the USD–INR exchange rate and the BSE index. and it depreciated against the Rupee. the demand for USD in the Indian market became high. due to inflow of foreign funds (foreign investors have USD to sell—they will buy INR to invest in Indian market against USD) in the Indian market. On the other hand. whenever overseas FIIs buy shares from the Indian market. there is an upward movement of the BSE index. At the same time. Considering all other factors to be constant.

Internationally. crude prices are named as BRENT.A large portion of India’s import payment is mainly for payment of oil.  RBI Intervention:The RBI. It is observed that USD appreciates at the end of the month when compared to other days of the month. the Indian Rupee depreciates against the US Dollar. today’s market is mature enough. the Indian rupee depreciates against USD. does intervene whenever it feels it is required to stabilize the market. the BSE index falls. resulting in heavy demand for USD. The Indian currency market largely depends on the price of Dubai Crude. Whenever FIIs book profits by selling their shares. It is the responsibility of the RBI to keep the exchange rate unaffected at a time of volatility in the foreign currency market. It has been observed that RBI intervenes in the currency market whenever there is any abnormal . However. NYMEX. with players of foreign exchange covering themselves against this type of expected fluctuations in the market. and at the same time INR depreciates against the USD. Consequently. primarily because of the month-end demand of USD in the wake of payment for imported oil. the Indian Government buys more USD against INR to honor the import liability. which regulates the Indian currency market. As such. and Dubai Crude. Whenever there is any hike in the oil price per barrel. or to keep market volatility under control.

Exports from India are of handicrafts. .” Example:1. The mentioned export items contribute substantially to foreign receipts. leather products. During the periods when the dollar was moving high against the rupee. textiles. gems. chemicals and related products. This is the one reason for our Indian rupee is weaker than US dollar. when the exports to other countries is more than imports then it means the foreign capital flows in. The reason being they produce highly technical goods while developing countries like India produce agrarian based goods which is not having better terms of trade. The RBI buys foreign currency (USD) to depreciate the domestic currency. readymade garments. jewelry. either upward or downward.movement in the exchange rate.  Export-Import:A county's exchange value depends upon its exports to other countries and developed nations like America are having better terms of trade than the developing nations like India as it commands more trade with world countries. and sells foreign currency when the domestic currency depreciates abnormally. 2. industrial machinery.

India being one of the under developed country has to obey to dictates . Some data from the US. RBI. Moody’s.economically developed countries and under developed countries. such as GDP growth rate are known to influence the currency market. World is divided in two main segments viz. Release of Economic Data:The economic data or surveys released by various national and international agencies. selfish. India attained its independence in 1947 which is a very youngest country in Asian region. India is still a developing country due to its vast population also.  Political Corruption:It is the shortsighted. including FED. political forefathers of Indian politics are also responsible for accepting the term of exchanging more rupees in exchange of one dollar. etc. can influence market sentiments and lead to movement in exchange rates.

Therefore. 2. and international monetary fund. therefore.The United States has a highly advanced freemarket economy.market economy. exchange and distribution of goods or commodities. since its independence it is begging before the world bank and IMF for loans for its various types of infrastructural development activities. financial and industrial activity. the world bank and IMF which are mostly run by officers appointed by the developed countries from western world who are coming from rich developed countries naturally enjoy upper hand over the monetary issues like exchange value of their currency. the . 2.  Conclusion:1. management of money and other assets. India as a youngest country.of monetary policies executed by the World Bank. In a free. Commercial.4047 Indian rupees are exchanged against one US dollar. as of today 44. production and manufacture.

7. monetary policy. Comments from political leaders and top bureaucrats do influence the market. Government strategy and policy have longlasting impact on country’s economy.prices of almost all goods and services are stated in units of money. RBI credit policy. Strong Government. strong currency. Annual economic review. also strongly influence the currency market. 8. 5. 3. In rare cases Natural calamities also affect the value of currency. 4. 6. but this is very short-term. A Case Study By DeVKuMar . Based on the gold reserves possessed by the respective countries. etc.

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